Balloon Payment

Formal

For a rental/lease contract, a significant ‘final’ payment, much bigger in size than regular payments, that matches the end of life value of the asset being rented / leased. Its purpose is to reduce the monthly payment being made through the life of the contract, and offset the impact of the large final payment by re-sale of the asset itself.

Real-world Example

Someone leases a $30,000 car with $400/month payments over 3 years, then faces a final balloon payment of $12,000 to either buy the car outright or hand it back.